Europe’s sovereign-debt crisis has led to a collapse in the rates container lines charge on routes from China to the Mediterranean, creating a two-tier price structure as they boost fees for destinations further north.
The cost of a container shipment from Shanghai to Spain or Italy has tumbled 46 percent to $955 in five months, according to ICAP Plc, with the spread between south- and north-European rates widening to $436 as of Nov. 2 from $42 a week earlier.
“Fundamentals on the Asia-Med are dire and we’re hearing demand is very, very low,” said Richard Ward, an analyst at ICAP, which provides ship broking services. “That’s led to the decline in rates as carriers look to secure what cargo they can.”
While the holiday season typically marks a boom in consumer goods deliveries, households in Greece, Italy, Portugal and Spain are cutting back on gifts amid rising unemployment and public-sending reductions. The plunge in south-European rates may weigh most on A.P. Moeller-Maersk A/S, CMA CGM SA and other lines with multiple Mediterranean container services.
“The Mediterranean area has experienced a much sharper drop than north Europe,” A.P. Moeller-Maersk Chief Executive Officer Nils Smedegaard Andersen said in a phone interview on Nov. 9. “Consumers in northern Europe are cautious, while consumers in the south are in an outright crisis.”
Shares of Copenhagen-based Maersk have gained 8 percent so far this year, valuing it at 175.3 billion kronor ($30 billion).
Of 10 weekly Asia-Europe services operated by Maersk Line, the world’s top container shipper, five go to the Mediterranean or Black Sea. Marseille, France-based CMA CGM, the No. 3, has four routes to the region, the same number as from East Asia to northwest Europe, while Hamburg-headquartered Hapag-Lloyd AG is less exposed, with one route from Asia to the Mediterranean and one to the Black Sea, versus six services to the north.
Container rates from Asia to northern Europe and the Mediterranean rose 22 percent and 18 percent, respectively, as of Oct. 26 after companies including Maersk and Hapag-Lloyd announced fee increases of $500 per box, ICAP figures show.
Subsequent data reveals the price increase stuck only for northern ports, where charges rose a further 13 percent to $1,491 per standard container on Nov. 2, while dropping 17 percent for Mediterranean routes. That’s the first time since July 27 that rates have moved in opposite directions.
Container volumes on Mediterranean sailings from Asia have slumped to about half those for north-European trips, according to Danish shipping association Bimco, which accounts for 65 percent of world tonnage.
The resilience of north-European markets allowed leading container lines to raise rates significantly in the second quarter, boosting margins and earnings in subsequent months.
Maersk Line recorded net income of 2.87 billion kroner in the third quarter, versus a year-earlier loss of 1.53 billion kroner, the parent company said Nov. 9. There’s likely to be a “modest” profit for the full year, it reiterated, while cutting an estimate for annual growth in global container demand to 3 percent from the 4 percent predicted in August.
Hapag-Lloyd, Europe’s fourth-largest line, this week said third-quarter net income rose more than fourfold to 45.6 million euros ($58 million) as the average freight rate advanced 8 percent to $1,647 per box. Still, prices fell in September as the usual peak in demand prompted by retailers stocking up for the holiday period failed to materialize, the company said.
Third-quarter container volumes between Asia and Europe fell 15 percent on so-called “head-haul” legs -- those sailings on which boxes are fullest -- according to Maersk, and though Germany continues to sustain demand, outperforming euro-area partners, recent numbers point to growth grinding to a halt.
German factory orders and industrial output fell more than economists forecast in September and business confidence is at a 2 1/2 year low. The economy may shrink in the fourth quarter, according to the Bundesbank, and the European Commission on Nov. 7 halved its 2013 growth forecast to 0.8 percent.
That could combine with a relaxation of capacity controls at shipping lines and begin to depress rates on container routes to northern Europe, according to ICAP’s Ward.
“Carriers were more successful in pushing through a general rate increase for Asia-northwest Europe as they took corrective measures by temporarily removing surplus capacity,” he said. “This capacity is now being redeployed and in conjunction with traditionally lower cargo volumes during the final few months of the year, it will place downward pressure on rates.”